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Net-Zero goals impossible without large-scale private sector CCS investment

A new report from the Global CCS Institute – an Australia-headed international think tank focused on carbon capture and storage (CCS) technology – says significant financial commitments are needed from the private sector to address the climate impacts of energy-intensive sectors.

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Estimated costs for deploying CCS to meet emissions targets of the IEA-SDS. For each doubling of global CCS capacity, a reduction in cost, due to the learning rate, is achieved. These two scenarios estimate the overall cost for both a 20% and 10% learning rate (graphic courtesy Global CCS Institute).

The paper, “Unlocking Private Finance to Support CCS Investments“, arrives ahead of COP26 at which parties have been asked to concentrate efforts toward ‘getting finance flowing for climate action’ amongst several other priorities.

CEO of the Global CCS Institute, Brad Page, highlighted the report’s focus on the urgency of investment to achieve deep decarbonization.

What happens in the next decade will be crucial in enabling CCS to reach the necessary scale in time to limit the impacts of global warming. The necessary investment far exceeds what governments are willing to provide, particularly within a short timeframe. Governments have a key role to play in creating an enabling environment for very large-scale private sector capital allocation through climate policies which place a value on CO2 emissions reductions, said Brad Page.

The International Energy Agency’s (IEAs) Sustainable Development Scenario (IEA-SDS) finds that 15 percent of all emissions abatement needs to come from CCS. This translates to an almost 100-fold increase in CCS capacity by 2050.

Trillion-dollar investment required and feasible

The report estimates the total capital requirements for this ramp-up in CCS over the next three decades will range from US$655 – 1 280 billion depending on the falling costs and learning rate for the technology suite.

Investing around one trillion dollars over almost 30 years is well within the capacity of the private sector which invested almost two trillion dollars in the energy sector in 2018 alone. Government decisions hold the key to enabling the requisite private sector capital being allocated for CCS deployment, Brad Page remarked.

Report author, Dominic Rassool, Senior Consultant – Policy and Finance, emphasized the role of mechanisms like project finance and green bonds in fulfilling the capital requirement.

Most existing CCS facilities have been funded primarily on the books of large corporations or state-owned enterprises. The magnitude of investment required, and the fact that many companies are constrained by their balance sheets means this model will not support rapid growth in CCS capacity. There are trillions of dollars available in the private sector for investing in CCS but allocating it requires policy incentives that facilitate viable business models for CCS, Dominic Rassool said.

The report recommends that project finance – a model which allows for non-recourse debt as well as for multiple equity investors to participate in a project – is used to greatly accelerate investment in CCS capacity.

Another recommendation from the report suggests that green bonds be applied to CCS projects in hard-to-abate sectors like cement, fertilizers, and chemicals.

Noting the higher risk associated with deploying CCS in developing countries, where emissions are growing most rapidly, the report highlights the primacy of climate finance in enabling deep emissions mitigation.

UNFCCC funds like the Green Climate Fund (GCF) could play a key role by leveraging private capital into CCS investments that each deliver multi-million tonne per year emissions abatement.

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